Anthem’s Stock is Down as it Announces Health Insurance Credits

“Effective today, we’re adjusting our January 2019 average health insurance rebate amount for small employers. In January, we were estimating a rebate of around $130 per participant. Instead, we are lowering that amount to around $80 per participant,” the company announced in a press release. “Even with the lower amount, the average annual rebate received by small employers will still be in the range of $1,000 to $1,500, compared to the $600 to $1,000 rebate that they were expected to receive under the January rate.”

Anthem, is one of the nation’s largest health insurance providers and provides coverage to more than 20 million Americans. In its statement, the company acknowledged that its revised rebate would affect many individuals in the U.S.

The company is blaming Washington for its actions:

“In recent months, ACA tax law changes have provided us with more work to do –- resulting in a more precise rebate calculation. By law, health insurance premium tax credits are based on the average cost of individual coverage with an expected average reimbursement for these tax credits of $1,700. However, in recent weeks, we have been required to reassess our refund projections in response to two temporary tax law changes: the limitation of the total dollar amount of eligible deduction from premiums, resulting in the elimination of the full-year medical expenses (PCOMED) deduction; and the application of the medical expense reinsurance provision in connection with the end of the transitional reinsurance reimbursement program (TRIPLE-PLUS Reinsurance Program). “In February, as a result of these changes, we issued revised guidance for brokers and expect to issue revised guidance to employers by the end of the quarter. “Finally, the rebates will apply to January 2019 coverage for most small group health insurance policyholders. Full details about payment and reporting requirements will be updated when employers finalize their 2019 rates.”

Shareholders are, understandably, concerned. Share prices are down 0.59%, or $2.50, to $236.90 in the hour following the news of the revised rebate announcement.

While many businesses can change their plan offerings to increase their profit margin on the new plan pricing, Anthem is able to change its rebate estimates during the filing season on the basis of actual costs incurred during the year. The company has seen significant reductions in costs over recent years.

That’s not to say that the company hasn’t changed its rebate estimates before. The company announced in its 2017 annual report that “if premium rates increase more than 5% we anticipate that a substantial number of our individual health plan members will experience an adverse selection event under the Affordable Care Act (ACA).” That affected 2018 health insurance plan premiums and resulted in an increase of around 13% in the number of Anthem’s members who were not eligible for the ACA’s health insurance tax credits.

Shares aren’t down because of the prices from insurance providers that Anthem contracts with. On the contrary, Anthem is a big beneficiary of the ACA, and many other health insurance providers will also see increases in costs. Insurance providers “bear risk when they underprice their policies, thereby encouraging healthy people to choose to pay a premium and decline ACA health insurance tax credits. In this way, the affordable coverage promised by the ACA is being eroded,” according to Kaiser Health News.

Many health insurance policyholders will see increased costs if the ACA goes away, so any cutbacks by Anthem are concerning for its shareholders.

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